Economic Snapshot for July 2010
Economic Snapshot for July 2010
The private sector is growing but a number of other areas in the economy need policy attention, writes Christian E. Weller.
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The private sector is expanding. It added almost 600,000 jobs in the first six months of 2010 compared to regular losses of more than 700,000 jobs per month in early 2009 at the height of the recession. But problems in a number of other areas have slowed the momentum and thus require policy attention.
The U.S. trade deficit is growing again because imports are increasing faster than exports, thereby reducing current economic growth. State and local governments are also struggling with their troubled finances, laying off workers and thus weakening the accelerating jobs growth. And jobs and wage growth will have to continue allowing families to reduce their still large debt burdens while also increasing their consumption.
1) The U.S. economy has turned the corner. Gross domestic product, or GDP, grew at an annual rate of 2.7 percent in the first quarter of 2010, the third quarter with expanding economic activity in a row. The American Recovery and Reinvestment Act provided additional income to consumers and businesses, which led to more business investments. Investment in inventory stock piles and in equipment such as computers and software explained a large portion of the increase, or 95.9 percent, of the first-quarter growth. The initial policy intervention in the economy thus helped boost private business spending into 2010.
2) The trade deficit rises again. The U.S. trade deficit stood at 3.5 percent of GDP in the first quarter of 2010—up from its latest trough of 2.4 percent of GDP in the second quarter of 2009. U.S. exports are still rising, but U.S. imports are growing even faster, especially for industrial supplies and capital goods.
3) The labor market recovery takes hold. The U.S. economy added a total of 882,000 jobs in the first six months of 2010, and 593,000 of them were in the private sector. But state government employment has declined for the past four months and local government jobs have dropped from March to June 2010. This causes a problem since the economy still has 7.5 million fewer jobs than at the start of the recession in December 2007.
4) Unemployment stays high among the most vulnerable. The unemployment rate was 9.5 percent in June 2010. The African-American unemployment rate that month stood at 15.4 percent, the Hispanic unemployment rate at 12.4 percent, and the unemployment rate for whites at 8.6 percent. Youth unemployment stood at a high 25.7 percent, and the unemployment rate for people without a high school diploma stayed high at 14.1 percent, compared to 10.8 percent for those with a high school degree and 4.4 percent for those with a college degree.
5) The unemployed are out of a job for long periods. In June 2010, 6.8 million people had been looking for a job for 27 weeks or more. The average length of unemployment that month was 35.2 weeks—a record high since the government collected these data after 1948—and 45.5 percent of the unemployed were out of a job for 27 weeks or more.
6) Employer-provided benefits continue to disappear. The share of private-sector workers with a pension dropped from 50.3 percent in 2000 to 45.1 percent in 2007 and 43.6 percent in 2008, and the share of people with employer-provided health insurance dropped from 64.2 percent in 2000 to 59.3 percent in 2007 and 58.5 percent in 2008.
7) Family incomes drop sharply in the recession. Median inflation-adjusted family income fell by $1,860 to $50,303 (in 2008 dollars) in 2008 from 2007. This was the lowest family income since 1997. White family income stood at $55,530, compared to African-American family income, which was $34,218, or 61.6 percent of white income. Hispanic family income was $37,913 in 2008, or 68.2 percent of white income.
8) Poverty continues to rise. The poverty rate stood at 13.2 percent in 2008—its highest rate since 1997. The African-American poverty rate was 24.6 percent, the Hispanic rate was 23.2 percent, and the white rate was 8.6 percent in 2008. The poverty rate for children under the age of 18 rose to 19.0 percent—also the highest level since 1997. More than one-third of African-American children (34.7 percent) lived in poverty in 2008, compared to 10.6 percent of white children and 30.6 percent of Hispanic children.
9) Corporate profits soar. Profits in the nonfinancial corporate sector rose in inflation-adjusted terms by 70.3 percent before taxes and 73.5 percent after taxes from December 2008 to March 2010. Corporate nonfinancial inflation-adjusted profits in December 2009 were thus higher than at any point before 2005, though they are still far from the peaks of the last boom.
10) Family wealth begins to recover. Total family wealth increased by $5.3 trillion, or 10.8 percent in 2010 dollars from March 2009—the lowest point—to March 2010, largely as a result of higher stock prices. Home values rose by only $177 billion, in comparison, or 1.1 percent during the same period. Household wealth was still $14.8 trillion below the level of June 2007—the last peak of family wealth.
11) Debt levels are still high. Total household debt equaled 121.7 percent of after-tax income in the first quarter of 2010. This is down from a record high of 130.7 percent in the first quarter of 2008, but it is still higher than at any point before the second quarter of 2005.
12) Mortgage troubles stay high. One in seven mortgages is delinquent or in foreclosure. The share of mortgages that were delinquent was 10.1 percent in the first quarter of 2010, and the share of mortgages that were in foreclosure was 4.6 percent.
13) Families feel the pressure. Credit card defaults rose to 10.0 percent of all credit card debt in the first quarter of 2010—an increase of 137.4 percent from the fourth quarter of 2007.
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Christian E. Weller